"Highly touted" reshoring event hits a speed bump, says A.T. Kearney. Really?
By Mike Randle
If you have ever seen one of my presentations, then you know about the word "reshoring" and how that phenomenon has lifted the spirits of even the most skeptical Southerners regarding the future of the region's economy. After all, in the last four decades, manufacturing has suffered a bloodletting never before seen in U.S. history. The biggest factor behind the slow and long meltdown that began in the 1990s was the herd mentality to offshore manufacturing capacity to cheaper locales, primarily by U.S.-owned companies.
Today, manufacturers are moving production back to North America. The reasons to reshore include rising wages in Asia, long and costly supply chains, poor quality, intellectual property risks and other factors. Many who moved realize today that relocating to Asia to manufacture goods for U.S. consumption isn't without drawbacks.
So, in December, I read on my every-five-minutes-a-new-story-is-posted business news aggregator, RandleReport.com, that A.T. Kearney has essentially shot one over the Boston Consulting Group's bow regarding reshoring. Many credit BCG for discovering reshoring several years ago.
The A.T. Kearney report read in part, "reshoring is not what it is cracked up to be." That was A.T. Kearney's bold claim in their December report. The company did cite an improving environment for manufacturing in the U.S., and that electrical equipment, transportation equipment and apparel manufacturing made up more than 40 percent of reshored plants.
If you recall, the Boston Consulting Group -- specifically author Hal Sirkin -- produced a report in the summer of 2011 titled, "Made in America, Again." That report may be the most talked about document written in decades among economists and economic developers. After I read "Made in America, Again," I added in my presentations, "This paper may be the most important document regarding economic development in the South that's ever been written."
SB&D had been watching the reversal in the South’s economy from service-based to manufacturing-based since manufacturing projects in the region began ascending in number in 2005. We didn’t have an explanation for it until we read Sirkin’s study. The study gave us the answer to what we were witnessing. It all made perfect sense.
Like all reports, rankings and such, it's always about semantics. In A.T. Kearney's case, they claim to have a "growing database of 700-plus reshoring cases across all industries." But let's take a look at the definition of "reshoring." If a U.S.-based or foreign-owned company chooses the South over Asia for a new plant – not a “reshored’ one -- that manufactures things for U.S. consumption, can that not be viewed as reshoring? I can tell you without a doubt that more companies that would have sent added capacity to Asia are now choosing the U.S. instead. Since 2005, we are talking about thousands of plants for new capacity built here, not in Asia, for U.S. consumption.
In fact, new capacity is different from reshoring. The pure definition of reshoring, I assume, is when a company brings its plant back to North America that it moved overseas over the last 25 years. But the pure definition of reshoring – the one that A.T. Kearney used in its recent report -- is too narrow. Pure reshoring is happening. That we know. And then there is the gray area. There is a Canadian company named Methanex that has disassembled at least two billion-dollar-plus methanol plants in South America and are reassembling them in Louisiana just to get cozy to cheap natural gas. Those plants were never on America's shores to begin with. Is that reshoring or is it offshoring?
Look at "reshoring" this way. Forget the details and let’s not call it reshoring any longer. I'm not. By 2025, according to PricewaterhouseCoopers, U.S. manufacturers will see an annual cost savings to produce goods of $11.6 billion just from cheap natural gas found in the U.S. That figure rises, according to PwC, to $22.3 billion a year in savings for manufacturers in 2030, and $34.1 billion a year in 2040.
The facts are this: since SB&D began recording projects announced in the South meeting or exceeding 200 jobs and/or $30 million in investment, the region has set records on the number of manufacturing announcements each year in the past four years. Manufacturing deals now more than double services deals in the South meeting or exceeding those thresholds. It was the exact opposite a few years ago.
Call it what you will -- reshoring, onshoring, nearshoring, make-it-where-you-sell it -- it doesn't matter. One thing A.T. Kearney failed to mention in its report; this is a manufacturing revolution not seen in the South since World War II and the handful of years that followed. We summed it up with a great headline in the spring 2014 issue; “Manufacturing madness and fracking fever." The data doesn’t just suggest. . .it screams that this manufacturing madness could go on for years, if not decades.